"Choosing Among Rival Poverty Rates: Some Tests for Latin America" - Darryl McLeod Poverty rates are now widely available, but are they reliable? Wide variations in estimated poverty rates for the same poverty line, year and country reflect an underlying reality: there is no widely accepted procedure for estimating national poverty rates. This paper proposes a simple, ex post procedure for selecting poverty rates that have certain desirable properties. Absolute poverty measures, estimated uniformly across countries, should be correlated with non-monetary indicators that reflect the consequences of physical deprivation (e.g. malnutrition, birth rates, school attendance). A series of non-nested hypotheses tests are used to choose among competing poverty and income measures. This method is applied to screen the 66 alternate poverty measures computed by Székeley, Lustig et. al. (2000) for 17 Latin countries. These tests identify 10-15 poverty measures that meet the standards set forth for useful poverty measures. This final group of poverty measures is then ranked using various performance criteria. -- Download PDF |
| "Exchange Rate Policy Among Trading Partners: Can Mercosur Countries Afford to Ignore Brazil? " - Marcelo LaFleur This paper uses the simple game theoretic policy coordination model of Canzoneri and Henderson (1991) and adds the effect of a “third country”. Most at risk are those who peg to a large country and ignore trading partners’ regime changes. To test the generality of this result, we develop an index of similarity among trading partners who all peg or float against the dollar. Our empirical results suggest it does not pay to be different, as disparities among third country trading partners impair the growth and export performance of pegged regime countries. Similarly to results by Edwards and Yeyati (2003), “third country” deviance further increases the vulnerability of pegged regime countries to terms of trade shocks. Our results seem to be robust to various measures of exchange rate regimes, as similar results are obtained using the “consensus” index of Ghosh, et al. (2003). -- Download PDF |
| "The Openness-Inflation Puzzle Revisited" - William C.Gruben and Darryl McLeodDynamic panel estimates show the negative relation between trade openness and inflation found by Romer (1993) but questioned by Terra (1998) became more robust in the 1990s, both among high income OECD and developing countries. Trade openness was also associated with less variable inflation during the 1990s and had a stronger disinflation effect in economies with floating exchange rates. -- Download PDF -- Download DATA (.xls) |
"Dollarization and Inflation Convergence in Latin America"
Darryl McLeod
Currency substitution or “dollarization” is often viewed as an inflationary source of exchange rate volatility. But in fact the consequences of “partial dollarization” depend on how Central Banks respond to competition. If seigniorage financed fiscal deficits are fixed, dollarization can lead to exchange rate fluctuations and higher inflation if not new capital controls, as much of the currency substitution literature suggests. However, if Central Banks respond by lowering money growth to maximize seigniorage revenues, inflation falls. This paper presents a simple model of currency competition and with open capital markets and optimizing central banks to illustrate this point. Empirical tests for Latin America and twenty other countries suggest that dollarization is both a legacy of past inflation and a constraint on future inflation. Dollarization may complicate monetary policy and prudential regulation, but currency competition also appears to accelerate disinflation and contribute to inflation convergence, particularly in Latin America.
"How fast did developing countries grow in the 1990s?"
Darryl McLeod
The growing divergence between national accounts and survey-based estimates of developing country consumption per capita is fueling a controversy over how much poverty fell during the 1990s. This paper ranks rival per capita growth rates with respect to their ability to predict changes in a range of non-monetary welfare indicators including nutritional status, child mortality, school enrollment rates, etc. National accounts based growth estimates, particularly those of the Penn World Tables, generally out-perform survey based growth rates in these tests.